ECONOMICS OF ELECTRICITY SUPPLY Lecture-10.pptx

The document talks about Renewable energy pricing, feed in tariff

1. ECONOMICS OF RENEWABLE ENERGY SUPPLY PRADIP CHANDA

2. BACK GROUND Most of the renewable energy sources are available abundantly in nature. Modern ways of using these energies requires sophisticated conversion. According to World Bank report 18.1% of global energy comes from renewable 48% of primary energy of Africa 27% of primary energy of Asia 31% of primary energy of Latin America Very negligible in Middle east & Soviet union Dominant Re is bio-mass - 7.5 % of global energy from traditional bio-mass Sector wise renewable energy mostly used in residential sector Potential: 61 PWh (Wind), 4105 PWh (solar), 59 PWh (bio mass) Renewable electricity generation is 26.2 % as per world bank report

3. DRIVERS OF RENEWABLE ENERGY Reduction of CO2 – Main driver – without mitigation can reach to double level by 2050. Security of energy supply – Increasing competition of supply, political instability, energy supply disruption in developing countries Improving energy access – More than 02 billion population world wide do not have access to clean energies. More acute in rural. Renewable energy offer clean energy. Employment opportunity – Potential employment generation directly due to de centralized, modular structure and local level operation. Other spill-over effect – Reliance on renewable would help improve macro economic stability. The logic goes as follows: Promotion of renewable energy reduces import dependence Fossil fuel import being the major constituent of international trade, switch to renewable will reduce the trade balance Cost of renewable technology is declining fast and became competitive to conventional power

4. RENEWABLE ENERGY FOR ELECTRICITY GENERATION Around 3.6% hydro, 2% wind and 2% solar. Asia accounts for highest amount of Hydro, while Europe non Hydro

5. RENEWABLE ENERGY FOR ELECTRICITY GENERATION Outside hydropower, electricity from wind turbines has emerged as the dominant source of renewable electricity (564 GW by 2018)

6. RENEWABLE ENERGY FOR ELECTRICITY GENERATION Electricity from renewables have number of issues. Intermittent in nature – Based on a estimated model for south east Arizona, unforecastable intermittency accounts for $6.10 per MWh and intermittency overall $46 per MWh. With solar installation cost $1.52/watt and carbon dioxide social cost of $39.00/ton, 20% solar would be welfare neutral. In gross term intermittency cost exceeds carbon cost. Social cost of CO2 in India is $86/ ton.

7. RENEWABLE ENERGY FOR ELECTRICITY GENERATION Electricity from such source can not be dispatch following merit-order, because they have to be used whenever available. Low capacity utilization Require stand by back up capacity In appropriate price signal: Net metering not based on time of the day. Therefor not providing proper price signal

8. RENEWABLE ENERGY FOR ELECTRICITY GENERATION Non internalization of externalities: Renewables have environmental advantage over fossil fuel. But it is not recognizing in pricing of renewable energy. High level of standby power cost Fuel price risk: Renewable do not face fuel price risk

9. LEVELIZED COST OF ELECTRICITY GENERATION (EIA) TECHNOLOGY COST IN 2015 $/MWh COST IN 2022 $ /MWh SUPER CRITICAL 66 86-101 IGCC 71 78-92 ADV. COMBINE CYCLE 74-89 49 NUCLEAR 84 92 WIND 99 82 BIOMASS (CFBC) 77-90 77 SOLAR THERMAL 225 126 SOLAR PV 456 49.9 HYDRO 45 61.7 Renewable required support for promotion

10. FEED – IN -TARIFF This is an intervention to promote renewable investment This includes solar, biomass, small hydro. Electricity utilities are required to buy renewables (small size) at fixed price As per EIA as much as 70% of global renewable generation getting realized through FIT. It may creates a contingent liability in future if huge capacity addn takes place

11. FEED – IN -TARIFF In Fig. it is assumed that the regulatory or public authorities have fixed the feed-in tariff at Pin. All producers whose cost of supply is below this price will enter the market and produce an output Qout . The total cost of support in this case is Pin x Qout . The important point to note here is that projects with low cost of production will earn a rent due to their locational or technological advantage. Competitive bidding processes; This is a quantity restriction mechanism

12. FEED – IN -TARIFF FIGURE 4.6   Growth in electricity generation from renewable energy sources in Germany. Source: German Federal Ministry for the Environment, Nature Conservation, and Nuclear   Safety, 2007.

13. FIGURE 4.15   Levelized cost of energy for selected renewable technologies in 2010 and   2020 from various sources. Note that AEO 2009 numbers are for 2012.

14. RENEWABLE OBLIGATION Renewable obligations (RO) also work through the quantity restriction mechanism. where the government sets the target for renewable electricity supply and lets the price be determined by the market Target set by Govt. to Electricity supplier (DISCOM) to purchase a given percentage of their supply from renewables [in England it is 15%. In India it is 17% at present. Increased to 21% by 2022] The Renewable Obligation requires the electricity supplier to supply a specific amount of renewable energy in a given year . Captive Generator (1 MW and above) to purchase RPO in meeting there requirement

15. RENEWABLE OBLIGATION A number of technologies are recognized as the eligible renewable sources ( such as wind, solar energy, biomass, etc.). The producer of renewable electricity receives from the RO administrator a tradable certificate, called the Renewables Obligation Certificate (ROC), for every unit of electricity generation—either at a uniform rate for every unit of renewable electricity produced or at a preferential rate depending on the technology employed. Generator thus have two saleable product. Electricity produced and RPO. Certificates are tradable and it must meet at least cost. How?

16. RENEWABLE OBLIGATION Consider two suppliers A and B who are subjected to a renewable target of q. The marginal cost of supply for A is given by MCa while that of B is given by MCb . If A has to comply the total requirement q, then its cost would have been Pa. Where as B could comply the requirement at Pb . However because of its cost advantage, B could expand its renewable supply beyond the required limit and trade the credit with A. Under such condition the total quantity Qa + Qb can be obtained at p. This allows both the supplier to benefit as the system can achieve the target at lower price p.

17. PERFORMANCE OF PRICE AND QUANTITY UNDER UNCERTAINITY Under ideal condition, price and quantity base mechanism produces same result. However in reality this do not happens, because shape of supply curve is unknown Let regulator assume the shape of the supply curve is MC2 and decides a FIT at p1 expecting Q2 as the supply to be supported. But let actual shape turned out to be MC1, resulting in Q1 as the supply volume. This results in a increase in supply and thereby higher volume of subsidy. On the other hand for a quantity based system Let regulator sets a quantity ‘q’ assuming the shape as MC1. This leads to higher marginal price p2. From the above two the logic obtained is when slope of marginal cost curve is gentle the quantity based system works better in uncertainty, where as the price based system works better when the slope is steep.

18. PRICE AND QUANTITY UNDER UNCERTAINITY

19. RENEWABLE ENERGY CERTIFICATE It is a market based instrument to support RPO. Issued to Discom It address the mismatch between availability of RE source in state and requirement of RPO 1 REC is considered as a capacity of 1 MWh. Two types of REC namely Solar and non-solar are used for eligible entities. It is valid for 1095 days

20. RENEWABLE ENERGY CERTIFICATE

21. RENEWABLE ENERGY CERTIFICATE PRICE Non solar REC ( / MWh) w.e.f. - 01.04.12 -31.03.17 Solar REC ( / MWh) w.e.f . - 01.01.15 - 31.03.17 Forbearance  Price 3,300 5,800 Floor  Price 1,500 3,500

22. RENEWABLE ENERGY BENEFITS- ECONOMIC MEASURE Doubling the share of renewables in the global energy mix by 2030 would increase global GDP by up to 1.1 % Improvements in human well-being and welfare would go far beyond gains in GDP Economic impacts based on consumption and investment; Social impacts based on expenditure on health and education; and Environmental impacts, measured as greenhouse gas emissions and materials consumption Doubling the share of renewables increases direct and indirect employment in the sector to 24.4 million by 2030 .

23. THANK YOU